The UK broke up with Huawei four months ago but the Chinese tech giant is asking for another chance. The rules of break-ups say London should stick to its guns; but will the new guy, US president-elect Joe Biden, change the way it feels?
When the UK government declared in July that 5G network operators could no longer use Huawei gear, it was a financial and symbolic loss for the company, and by proxy, for China in its trade war with the US. But Huawei hasn’t given up the fight and in recent weeks, it has redoubled its efforts to convince the British public that their government made a mistake. What does it hope to gain?
Why did the UK ban Huawei?
The story begins in Jan. 2020. UK prime minister Boris Johnson—who ran a leadership campaign (pdf) that promised “gigabit broadband for every home and business”—announced that Huawei would be kept out of the core parts of Britain’s telecommunications network, but could still supply up to 35% of the non-core parts.
It was good news for Huawei, which was fighting for its life against a US-led campaign to convince partner countries that the company is a front for the Chinese Communist Party and an existential threat to their national security. Washington points to a law passed in China in 2017 (pdf, p. 2) that says all companies must “support, cooperate with, and collaborate in national intelligence work” as evidence that Huawei could be compelled to install back-doors in the equipment it installs. (Huawei says it “has never received such a request” and “would categorically refuse to comply” if it did.)
The UK’s intelligence community also deemed Huawei a “high-risk” vendor and the company was already subject to regular reviews by the National Cyber Security Center (NSCS), which found that “Huawei’s cyber security and engineering quality is low and its processes opaque.”
Huawei is one of two major players in China’s telecoms market, along with ZTE, and 59% of its revenue last year (pdf, p. 22) came from China. But as a global ambassador for Chinese technology, it’s also a proxy in the new cold war (paywall). If the US succeeds in knee-capping Huawei, the thinking goes, what’s to stop it from targeting other Chinese giants?
In this case, the UK was seen as a bellwether for Europe; if London let Huawei stick around, then officials in Paris, Berlin, and Brussels would likely do the same. So it was especially bad news for the company when, in July, the UK government reversed its position, banning Huawei from future 5G networks and telling operators to strip out existing Huawei gear by 2027.
In the six months that separated January and July, the US sanctioned Huawei, preventing it from buying American-made hardware. The NSCS concluded that “operators should not procure any Huawei 5G equipment affected by the most recent US sanctions, as we can no longer offer sufficient assurance that the risks…can be mitigated.” Countries like Belgium and Sweden have since made similar decisions, while Germany is still weighing what it will do but seems to be moving in the direction of limiting Huawei’s market access.
The US election could change things if Biden decides to relax export restrictions on Huawei. But that assumes that US pressure and supply-chain concerns were the only deciding factors in the UK’s decision. The UK has its own problems with China and the Huawei decision was part of a broader recalibration of its relationship with Beijing, notably over human rights concerns in Hong Kong and Xinjiang.
What is Huawei up to?
In the UK, Huawei hasn’t gone away quietly. It commissioned a report that relied on data from the UK Department for Culture, Media, and Sports to show that a three-year delay in the rollout of 5G could cost the UK economy £18 billion ($23.9 billion). It paid for another report from Oxford Economics that showed that Huawei contributed £1.7 billion to the UK’s GDP, and generated £470 million in tax revenue in 2018. Huawei is also helping to build a private 5G network in Cambridge Science Park.
This begs the question: To what end? If the government has already made its decision and won’t reverse it, as many analysts seem to think, then these are sunk costs in terms of time, manpower, and money. But there’s something to be gained from it, argues Dean Bubley, a tech industry analyst based in London. “At the moment, I suspect [Huawei’s situation in the UK] probably ranges from somewhere between bad and awful,” he says, “but even on that spectrum, they’d rather be on the bad end of things than on the awful end of things.”
Huawei vice-president and head of UK operations Victor Zhang told via email that Huawei has “connected every part of the UK in the past 20 years, helping to level up the country by supporting activity throughout the nations and regions. But we can do much more, helping to close the digital divide and put Britain into the technology fast lane. We hope the British government will keep an open mind and consider the consequences to a delay to the rollout of high speed networks.”
The guidance on Huawei equipment is just that—guidance—until Parliament makes it law by passing the Telecoms Security Bill. But the UK government hasn’t put forward a proposal for this bill yet and will likely face opposition from within Johnson’s own majority when it does.
Huawei may view this as an opening in which to build public support and obtain concessions, says Bubley, who imagines “some sort of scenario which is a bit more conciliatory.” The UK could “keep Huawei out of the 5G network, but allow it for 2G and 3G for legacy reasons,” for example. Also, Huawei still sells many other non-5G products in the UK and has plans to invest more than £1 billion into a new R&D center in Cambridge. And last year, the region encompassing Europe, the Middle East, and Africa (which includes the UK) accounted for 24% of Huawei’s revenue (pdf, p. 22).
The UK government is worried enough about the lack of vendor diversity in the 5G space to have assembled a task force to bring new players into the game. Right now it only has two main alternatives to Huawei, which can argue the ban restricts an already small market: Sweden’s Ericsson and Finland’s Nokia.
“As of yet, the UK [telecoms] industry hasn’t developed an alternative well enough to fill the gap” left behind by Huawei, explains Gabriel Brown, principal analyst at the US telecoms research group Heavy Reading. “Not that it won’t, but it hasn’t. So I think what [Huawei is] trying to do is probably just keep their name in the frame. Every little bit they can delay and every little bit they can save is an opportunity to build on again next time around.” If or when that time comes, Huawei will be ready.